You may remember our post from last month about the CUT FATT petition. CUT FATT is a “coalition” asking the FCC to adopt rules limiting the royalties which patent holders can charge DTV set manufacturers. We had a good chuckle about the oddness of the CUT FATT acronym (full name: Coalition United to Terminate Financial Abuses of the Television Transition) and the coalition’s somewhat limited membership (since only two companies, VIZIO and Westinghouse Digital Electronics, were identified as members). 

The initial petition appeared to be the kind of altruistic project that a “public interest” law school class, or maybe an Eagle Scout, might undertake: an effort to Do Good for Everybody Because, Gosh Darn It, It’s The Right Thing To Do.

It turns out that there was considerably more here than first met the eye. In the tradition of the late Paul Harvey, here is the rest of the story.

The CUT FATT petition asked the FCC to adopt new rules imposing restrictions on the ability of patent holders to license their patents. The FCC should step in, it said, because the FCC adopted standards for digital TV that rely on patented technology. CUT FATT plaintively worried that, in the U.S., entities holding DTV-related patents “operate freely in a ‘lawless Wild West’ without supervision or accountability”. It offered considerable information about how such matters are dealt with elsewhere in the world and urged the FCC to step in and impose rules to prevent abuse.

But in its 34 pages of text and attachments and what-not, the CUT FATT petition somehow failed to mention that its member, VIZIO, is and has for some time been involved in a knock-down-drag-out donnybrook before the International Trade Commission (ITC) concerning DTV patents. And just last November – less than two months before the CUT FATT petition was filed – VIZIO had lost an important ruling before an ITC administrative law judge. And CUT FATT’s proposed rules would, if adopted, give VIZIO a useful means of countering that decision.

Who knew?

It’s tempting to conclude that VIZIO, dumped on the canvas by the ITC decision, figured that it might benefit by opening a second front at another federal agency like, maybe, the FCC. But since the FCC would probably not be happy about being called upon to second-guess a sister agency in an on-going slugfest between two contentious parties, a less direct (and less apparently adversarial) approach would seem in order.  Let’s think . . . hmmmm . . . Hey,how about this: let’s form a coalition with a cute name and file a petition for rule making! 

Since the petition was filed in January, when the DTV transition was still scheduled to occur in February, VIZIO (or CUT FATT) may have hoped that the FCC’s DTV mania would cause the Commission to consider and resolve the petition tout de suite.  If that was, in fact, VIZIO’s strategy (and we certainly can’t say for sure that it was), it didn’t work:  the FCC was apparently unwilling to move the CUT FATT petition to the front of the line for super-expeditious treatment. That left VIZIO subject to the ITC ruling, which could result in the exclusion of VIZIO DTV sets from the U.S. market in a matter of months.

After the CUT FATT petition had sat around for almost two months with no FCC action, VIZIO apparently determined that a more direct approach would be appropriate. It filed a request for temporary relief, asking the FCC to require the patent holder, Funai Electric Company, Ltd., to license its patent “on reasonable terms” pending action on the CUT FATT petition.

And with that, the bar-room brawl previously contained within the walls of the ITC spilled over into the FCC.

Not surprisingly, Funai responded to VIZIO’s temporary relief request by urging that that request and the CUT FATT petition be consolidated and considered together. (Side note: consolidation would virtually guarantee that this proceeding would be going nowhere fast, but that’s not an argument that Funai advanced openly.)  Also not surprisingly, VIZIO opposed that suggestion, claiming that it needs prompt FCC action in light of an impending decision in the matter at the ITC. Funai responded, and there the matter now sits – already an impressive stack of several hundred pages and likely to grow.

High stakes litigation can resemble three-dimensional chess when parties try to wage their battles simultaneously in multiple fora. Often, though, those fora don’t like being put in the position of gumming up each other’s works. Generally, the FCC’s policy is not to let itself become embroiled in disputes (e.g., civil lawsuits and the like) which are not clearly within its area of primary expertise and authority. 

Patent licensing is one of those areas that fall outside of the Commission’s usual comfort zone. So while there were no rules prohibiting VIZIO (and its alter ego, CUT FATT) from trying to lure the FCC into the VIZIO-Funai melee, it seems to us unlikely that the FCC will be easily suckered into the fray.